The U.S. Senate on early Saturday morning narrowly passed the Tax Cuts and Jobs Act, a sweeping $1.5 trillion tax reform bill that could have a significant impact on the U.S. economy.
The nearly 500-page bill, which saw major rewrites as Senate Republicans haggled over key aspects of the measure until the early morning hours, passed 51-49. All 48 Democrats voted against the measure. Sen. Bob Corker, R-Tenn., was the only Republican to vote against it.
The Senate bill will now need to be reconciled with the House version that passed a little over two weeks ago.
Although the House version slashed the mortgage interest deduction (MID) cap in half, the Senate version keeps the MID threshold at its current $1 million. Although that could still change, it is expected that the final version of the bill will keep the MID intact.
A previous version of the Senate bill would have made mortgage servicing rights (MSRs) taxable upon creation. However, an amendment tacked into the version passed over the weekend eliminates this measure.
The Mortgage Bankers Association (MBA), which fought hard against this particular proposal, says it would have “required any item of income that an accrual taxpayer recognizes for accounting purposes, including MSRs, also be recognized for tax purposes.”
In a statement, Bill Killmer, senior vice president of legislative and political affairs for the MBA, says the provision would have “substantially disrupt[ed] the existing mortgage market, with the result being diminished competition as independent mortgage banks and community banks stop servicing and potentially leave the market.
“More sellers, fewer buyers and tax obligations mismatched with cash flows will depress pricing for MSRs market-wide, [would likely lead] to higher mortgage rates for consumers,” Killmer adds.
In a statement released earlier today, David H. Stevens, president and CEO of the MBA, thanked Sen. Mike Rounds, R-S.D.; Senate Finance Committee Chairman Orrin Hatch, R-Utah; Senate Banking Committee Chairman Mike Crapo, R-Idaho; and Sen. David Perdue, R-Ga., for addressing the language in the bill relating to MSRs.
“I want to personally thank Majority Leader McConnell, Chairman Hatch, Sen. Rounds, Chairman Crapo, and Sen. Perdue for working with us and commend them for their efforts on this important issue,” Stevens says. “Because of the Rounds Amendment, this package will protect the ability of most Americans to obtain safe, decent shelter and affordable home mortgage credit without disruption. Had this language not been included, the change in tax accounting for MSRs would have had a devastating impact on the flow of capital that supports a robust and competitive real estate finance market, both single-and commercial/multifamily. We thank the Senate for its leadership on this issue.”
The National Association of Realtors (NAR), however, believes that the Senate version “puts home values at risk and dramatically undercuts the incentive to own a home.”
“The tax incentives to own a home are baked into the overall value of homes in every state and territory across the country,” says Elizabeth Mendenhall, president of NAR, in a statement released Saturday. “When those incentives are nullified in the way this bill provides, our estimates show that home values stand to fall by an average of more than 10 percent, and even greater in high-cost areas.
“Realtors support tax cuts when done in a fiscally responsible way; while there are some winners in this legislation, millions of middle-class homeowners would see very limited benefits, and many will even see a tax increase,” Mendenhall adds. “In exchange for that, they’ll also see much or all of their home equity evaporate as $1.5 trillion is added to the national debt and piled onto the backs of their children and grandchildren.
“That’s a poor foot to put forward, but this isn’t the end of the road,” she continues. “Realtors will continue to advocate for homeownership and hope members of the House and Senate will listen to the concerns of America’s 75 million homeowners as the tax reform discussion continues.”